5 Years of Greek Austerity Measures: What Now?

Perhaps it is the birthplace of democracy, Western philosophy and Olympic Games, but today, no Member State of the EU wants to be in Greece’s shoes. Over the past few years, Greece has accumulated a colossal debt amounting to €323 billion euros (about 174% of its GDP) : 60% of which was lent by the Eurozone, 10% by the International Monetary Fund, and 6% by European Central Bank, all three of which together are otherwise known as the troika.

"Troika Go Home"

The consequences of the 2008 economic crisis have taken centre-stage in recent years, spurring high unemployment and throwing many Greeks into poverty. Jose Manuel Barroso, President of the European Commission at the time, described it as the “EU’s greatest challenge” . In May 2010, the troika agreed to bail Greece out with immediate loans (€110 billion), following speculation in Athens’ ability to repay its sovereign debt, which was nearly double the eurozone’s 60% debt limit in 2009 (113%) . The aim was to “support the Greek government’s efforts to restore fiscal sustainability and to implement structural reforms in order to improve the competitiveness of the economy [and] foundations for sustainable economic growth.”  However, the outcome didn’t even come close. This brings us to question why, given the unparalleled international effort, has Greece not been guided towards economic recovery? Well, most probably because of poor and inconsistent international level policy, which the EU is responsible for due to its high level of authority and total control of its Member State’s monetary policies during bailout negotiations.

These bailouts forced Greece to put in place a series of austerity measures; a form of policy that the Greek government has become all too familiar with, aimed at curbing the deficit. While integration and unity are easy to formulate in times of economic prosperity, the Greek situation exemplifies that it is in times of real crisis that the fibres holding together the union and its economic institutions are truly put to the test. The EU’s policies, and most importantly the role it played in the troika to overcome the crisis, caused more division than solidarity. During recent negotiations with Greece, Merkel said, “Europe’s credibility depends on us sticking to rules” . Why, in that case, if the EU strives towards the “promotion of economic, social and territorial cohesion and solidarity among Member States”  did it not advise Greece differently, firstly preventively, prior to its economic free-fall, and secondly following the failing series of austerity measures?

This brings us to the recurring theme of whether and how national interests play a role in influencing EU decisions. The Greek issue has quite actively highlighted the influential role of Germany, Europe’s leading economy. So, even when looking at the EU within a bigger international entity (the troika), national interests maintain a key position in influencing decision taking. The check-and-control mechanism within the EU, in which Germany plays a leading role, failed to identify and report any problems for the past decade, thus a punishment like that of austerity now seems quite one-sided. As a leading Member State of the EU, Germany should seek to embrace policies driven by growth, investment and spending. Or at the very least stop pushing for austerity that hasn’t worked, isn’t working and won’t work as a tool for successful economic recovery. Sure, it is argued that the heroin addict cannot blame the dealer and that Greece should not have spent so much imaginary money in the first place. But it is the lower and middle class who have ended up with the burden of paying for the "addictions" and misspending of its ruling elite (through taxes on all imaginable, thus reducing their expendable income to virtually nothing.) 

Humiliation and desperation for change gave birth to a left wing movement, emerging from the deteriorating economic situation: Syriza. The new Greek government was elected on an anti-austerity platform, making the promise to its voters that it would write off half of the Greek debt, lessen the cuts to jobs and increase salary and pensions. With such promises, we are not surprised that the country’s new Finance Minister, Yanis Varoufakis, who has vowed to end Greece’s “humiliation and pain”  has spent the last couple of weeks going from one meeting to the next in all four corners of the EU. The sense of urgency has been more pressing than ever due to the expiry of the financial bailout program on 28th February 2015. The clock is ticking. What cards are on the table for Greece and what does this mean for the EU and the troika?

Alexis Tsipras & Yanis Varoufakis

On 12th February 2015, Greece met with the human faces of the troika, its main creditors, turned enemy. The next negotiations of the month of February will not only determine Greece’s economic future, but Europe’s too. However, so far in Syriza’s attempted negotiations, changing Europe’s approach to Greek aid has proved to be difficult. The stakes of these talks are high because of fears that default from Greece could push it out of the euro and catalyse chaos in the EU. Here are some of the possible scenarios, which either way will be a huge challenge for Greece and for the EU as a global economic governing actor. Greece is opposing an extension of the bailout deal; it would be too harmful for the economy. Furthermore, it is not an option for Syriza, as it was voted in on the basis that it would ease austerity measures, thus the settling of further bailout deal is not possible under this government. Since the scenario of Greece getting what it wants is highly unlikely, Greek defence minister has said that it might seek funding from Russia, China or the US if it failed to reach a new debt agreement with the Eurozone. Alternatively, the troika could compromise in enabling flexibility in repayments, ie: allowing Greece to skip interest payments during a given period, which could in fact free up some cash and ironically make the country “a better bet for lenders” .

The Germans too suffered from heavy economic repercussions of the Treaty of Versailles after losing World War I. Germany in the 1930s experienced the same humiliation of agreements imposed onto it from an outside force, that Greece is experiencing today. This is why Varoufakis argues that “the Germans understand best how the Greeks are doing”  and this is why the troika and thus the EU, under heavy German influence is so badly viewed by the Greeks as being equivalent to an occupying power. Lastly, what about the Grexit option? No, a Greek default would destabilise the whole Eurozone. The aim is not to leave Europe; it’s to change it. The bailout era is over.